Report: Inflationary Pressure in July Highest in Almost a Decade as Productivity Declined

Dike Onwuamaeze

The Purchasing Managers’ Index (PMI) of the Stanbic IBTC Bank Plc has shown that Nigeria witnessed its sharpest inflationary pressure in the past nine-and-a-half years in July 2023, which caused overall input cost to increase at joint-fastest pace on record and lowered productivity of the private sector’s enterprises.  

The PMI’s survey, which covered around 400 private sector companies in agriculture, mining, manufacturing, construction, wholesale, retail and services sectors, stated that more than 50 per cent of the companies it surveyed “increased their charges over the month.”

The PMI, reported that inflationary pressure also weakened productivity in the economy and caused the PMI to record its lowest business sentiment in survey’s history.

During the month under review, productivity declined from 53.2 in June to 51.7 in July, which pointed to a modest strengthening of operating conditions that was the least pronounced in the current expansionary sequence.

The PMI stated that “steep price pressures acted to limit the pace of growth in the Nigerian private sector in July. Overall input costs rose at a pace unsurpassed in more than nine-and-a-half years of data collection, with selling prices up rapidly in response,” adding that “rising price pressures impacted demand, with growth of both new orders and business activity softening as the second half of the year got underway. Meanwhile, business confidence hit a new low.”

According to the Head, Equity Research West Africa, Stanbic IBTC Bank, Mr. Muyiwa Oni, the softer improvement in the health of the private sector reflected trends in output and new orders during July 2023.

He said, “In both cases, rates of growth eased to the weakest since the respective returns to expansion following the cash crisis at the start of the year. While some firms reported having been able to secure new contracts amid rising customer numbers, others highlighted the negative impact on demand of rising prices. July data signalled a steep increase in overall input prices, with the rate of inflation the joint-fastest since the series began in January 2014, equal with that posted in November 2021.”

Oni commented that purchase costs were the key drivers of overall input price inflation.

He said: “Higher fuel costs following the subsidy removal and currency weakness were the main factors leading purchase prices to rise. Meanwhile, staff cost inflation hit a six-month high as firms increased pay to help staff deal with rising transport costs.

“With input costs up rapidly, companies increased their output prices accordingly, and at one of the strongest rates on record. More than half of companies increased their charges over the month.”

He, however, added that employment increased for the third month running in July. According to the PMI report, “efforts to expand capacity led to a further rise in employment during July, extending the current sequence of job creation to three months.

“Moreover, the latest increase was solid and the fastest since January. Staffing levels expanded in the agriculture, manufacturing, wholesale & retail and services sectors.”

Oni said: “Input buying and stocks of purchases rose further, but rates of increase softened. Finally, business confidence continued to trend downwards in July and was the lowest in just over nine-and-a-half years of data collection.”

The PMI report also said that the July data pointed to a renewed rise in new export orders in the Nigerian private sector, following a fractional fall in the previous survey period. “Moreover, the rate of expansion was sharp and much stronger than the series average. Panelists reported improving demand in international markets,” it said.